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Google executive chairman and former CEO Eric Schmidt spoke at the D9 conference late on Tuesday night, and answered a huge variety of hard questions from Walt Mossberg and Kara Swisher without breaking a sweat.
(We’d love to see Larry Page do as well!)
Among the highlights:
- Google is not taking a cut of transactions in its new mobile payments service — it’s only taking a percentage of the Offers deals (like Groupon and other daily deals services do). The Offers service kicks off on Wednesday in Portland, Oregon, followed by San Francisco and New York later this year.
- Schmidt wishes that Nokia had signed with Android instead of Windows Phone, but doesn’t really view the combination as a viable platform yet.
- Talking about improving search, he sounded a lot like Microsoft talking about Bing: he said that Google is looking at ways to provide answers not just links. He also admitted that Bing does a few things better in particular verticals.
- As far as social goes, he reiterated that Google is not trying to duplicate Facebook or become a new social network — it simply wants to use data about your social relationships to make its products better.
- He thinks the future is in the intersection of local, social, and mobile. No surprise — so do a lot of VCs.
- When asked what users could do to improve security (other than use Chrome), he recommended choosing a Mac over a PC.
- He also didn’t name Microsoft as one of the top six most important companies driving Internet innovation at scale (even PayPal and eBay were higher — the others were Facebook, Amazon, Apple, and Google of course).
Here’s our complete coverage of the talk:
6:10 PT: The stage is empty. They’re cranking Tom Petty’s “Running Down A Dream.”
6:15: We’re due to start any time now. Still waiting….Now it’s The Cars, “Don’t Cha Stop (If It Makes You Feel Good)”
6:19: Wall Street Journal managing editor Robert Thomson is speaking now. Jane Lynch from Glee told some not particularly funny jokes.
6:23: OK, now on to Kara Swisher and Walt Mossberg. At last!
6:27: Eric Schmidt is now on stage.
6:30: Will Google be the target of a DoJ investigation?
Eric says they expect constant review of acquisitions, policies, competitor complaints. They’ve already had four separate investigations.
What’s the attitude toward Google in DC?
Schmidt says Google is a very strong consumer brand, but the Washington reception is mixed. They’re generally happy because Google is creating jobs, but acquisitions will be evaluated on a case by case basis.
6:31: Mossberg says there’s a new platform war taking place. Windows vs. Apple Microsoft won. But now we’re in the post-PC era. Talk to us about the “Gang of Four.”
Schmidt: Google, Apple, Amazon, and Facebook are all exploiting platforms well. We’ve never had four companies growing so much in aggregate. You can debate who’s 5th and 6th — PayPal, Twitter.
But those four: each is consumer brand that provides something you can’t do otherwise. Amazon — world’s largest store. Facebook — every friend you’ve ever had, including ones you can’t quite remember. Us — all the world’s information. Apple — beautiful products.
Global products with reach and economics that 10 or 20 years ago one company had.
Microsoft, before that IBM. At the time we were concerned about single company dominance. Now, each company is exploiting platform for creativity.
Look at Zynga: IPO there, it’s an app in front of Facebook. With LinkedIn’s IPO, platform competitors. It’s difficult to imagine how the next group of people get to that level.
There are no local companies. They’re all global, they all move very fast.
6:35: Swisher: you left out Microsoft.
Schmidt: it’s not driving anything in consumers. It’s done a good job locking itself into corporations.
Mossberg: you don’t think Xbox is important?
Schmidt: It’s not a platform at the computational platform, it’s gaming. Majority of Microsoft’s profits is still Office and Windows.
Getting back to the gang of four — branding, reach, consumer mind. We’ve never had this before. We compete and partner with all of them.
Mossberg: will we get down to two or one?
Schmidt: it won’t consolidate from mergers — they’ll never be approved. More likely, one will begin to miss the mark and a competitor will come along. Plus, platform plays don’t last as long. Can companies retain product excellence?
Swisher: Let’s talk each of them. With Apple, it’s been testy.
Schmidt: with success of Android it’s been rough, but we have a partnership as well. I had to resign from the board because of Android. We have a good search and maps partnership, we compete Android. We just renewed maps and search partnerships.
Swisher: Facebook?
Schmidt: Traditionally they’ve done deals with Microsoft because they gave Facebook terms we weren’t willing to give. We do search and ads. Facebook is about entertainment and identity and brand.
Swisher: what about your social initiatives like +1?
Schmidt: I admire some things. We missed something — identity.
Facebook great site to spend time with your friends. It’s the first way to disambiguate identity — you need to know who you’re dealing with online. From Google’s perspective, if there were an alternative, we could use it to make search better, navigation on Android devices, maps we can forecast where you and your friends will be. We’ll use technology we’re announcing over next while to make our current products better.
Mossberg: It’s not because Facebook is supplanting you? People used to find using search, now they find with friends.
Schmidt: It’s something Facebook did really well. Apple has similar strategies to get these linked structure relationships.
Mossberg: What about Amazon?
Schmidt; Done very well at the cloud layer with S3, ecommerce sites. Physical platform, distribution of goods. Using modern computer science, modern scaling.
Each company has used modern computer science techniques and very aggressive scaling.
Swisher: What is your job now on a day to day level?
Schmidt: Living on airplanes. Go to where customers are. Getting deals done. All governments. I did about half of that, it was untenable to do that as well as running the company in Mountain View.
Swisher: How is your tenure different from Larry Page?
Schmidt: First of all, Larry is a genius. Now we’re organizing product groups run by technical product heads. Did that on day one of his ascension. That’s way company is running. Tighter product execution, better products.
Swisher: Did you miss things?
Schmidt: Structure was complicated. I had started this reorg, but with Larry running it he goes through it every day talking product, product, product.
We have an agreement, anything important the three of us will talk about. He now has more control over resources — he doesn’t have to consult with me, he can decide. But anything big, we all three talk about it.
Mossberg: So what’s going on with music service, you kind of missed that.
Schmidt: We have tons of businesses — we’re mostly a cloud business. Enterprise, search….he’s changing the subject. Mossberg brought him back.
The reality is that music is fundamental from entertainment, branding, experiential level. Our competitor Apple has had a longstanding and successful structure with iTunes, works very well. We’ve been attempting to convince music industry to support subscription model. We just haven’t been successful. Consumers would like this service on Android.
Mossberg: Will Apple succeed where you failed?
Schmidt: I have no idea. I read the news, too.
If we were able to get these deals, there’d be many features we could add including selling music to consumers. That’s the pitch I’ve been making.
Optimal situation is where core business keeps growing, new businesses grow twice as fast. It gets harder and harder because you have to add billions to the bottom line.
Very large market potential if you get the product right. You can create a billion-dollar business. We’re not #1 in display ads, but it’s a many multibillion dollar business.
Mossberg: should we be comfortable that Google knows so much about us? Should that power be in the hands of a private company?
Schmidt: would you prefer the U.S. government to regulate? After you spend some time with the government, you might prefer that in a private company.
Google will remain a place where you can do anonymous searches. If you don’t log in and tell us who you are, that’ll continue to be true forever.
Mossberg pushes back…not quite that simple.
Schmidt: you can log in and use your privacy dashboard, see what we know about you, and tell us to forget it. We tell people what we know and give them the choice of getting it deleted. The rub here has to do with how long we keep this information. We keep some of it to make our algorithms better, but we keep it roughly a year to 18 months.
Mossberg: it’s fun to say the government is incompetent. But the government is elected to protect us. They don’t always do it very well. They set rules about privacy. 12 to 18 months makes sense to you, and regulators, but maybe we outhg to have debate what makes sense to public.
Schmidt: we are generally in favor of this approach.
Mossberg: in favor of a law?
Schmidt: depends on what the law is. Privacy is a compromise between the interests of a government and a citizen. So with log retention, all governments have settled on this 12 to 18 months thing.
Swisher: Steve Jobs lobbies for stories — he told me I should write more about Google and privacy. He said an Android phone is a probe in your pocket. How do you know that Steve Jobs? He said “we don’t have a search engine to suck it back into.”
Schmidt: to be very clear, we don’t take info your phone generates about your location and suck it into search. … We don’t suck it into any of our products. What does Android do with the location info? There’s an opt-in for using that information if you want to use social products like Latitude. Some info goes back to Google anonymized, but we store it.
Mossberg: what about third-party apps. Very scary screen in App marketplace — this thing is going to use your phone book, location. Is that good enough?
Schmidt: what else could we do?
Mossberg: curate — you’re a game, you don’t need to use this guy’s phone book.
Schmidt: we’ve made a decision not to curate. Apple model is the inverse of the Google model. Apple model produces beautiful products, very controlled. Google model is just the inverse. Let the market decide. Competition.
Swisher: were you offered the job at Commerce Department?
Schmidt: I won’t talk about this. I’m extremely happy working at Google. I plan on staying there a long time.
Swisher: will you be involved in Obama campaign?
Schmidt: Yes, but not sure what my role is yet.
Mossberg: Impact of information gathering on foreign governments? Foreign policy?
Schmidt: working with an author on a book about that. What we take for granted in this room, is a huge surprise to the average Western world citizen, even larger surprise to governments of repressive regimes. What does 5, 10 years from now look like.
People empowered in enormously new ways. Wireless revolution, declining cost curve — tools will be used for good and evil. Technology bias, empowerment of consumers.
Rather than the traditional realist view of foreign policy, state vs state, we look at consumers and information. Look at perfectly executing evil dictator would do, then look at what best dissident would do…and we conclude those are the exact same tools that terrorist would use.
Mobile usage and face tracking — I’m concerned about that. Will be possible to do face recognition against crowds, evil dictator could use. In Europe, will be regulated.
Swisher: but Google is working on that. And who will be running Google in 50 years? Google Goggles — could you do faces? He said “we DON’T do that.”
Schmidt: We built that technology and we withheld it. We decided to stop. It’s the only thing we’ve ever withheld.
The worst case is biometric databases.
Mossberg: we’ve always divided enterprise — big bloated governments and companies that are not entrepreneurial — versus consumer.What’s up with enterprise?
Schmidt: when I was young, assumed businesses would be most of what we focus on. Complicated computers, complicated technology.
Now we’re solving problems of consumers. Death of IT as we know it. Next gen companies using Web-based solutions. We’re all moving ot Web standard called HTML5, all IT vendors consistent. Entire industry moving to this model.
The IT industry was built around specialized services, high-priced consulting gigs. Now don’t need it.
Swisher: Who are the victims of the death of IT?
Schmidt: historically it’s very hard to go from large old revenue stream to new. Pure plays tend to win. Think about news media — Huffington Post or Politico, didn’t have old infrastructure.
Software companies went away with Web — packaged software.
Swisher: how do you assess Microsoft in the enterprise space?
Schmidt: in enterprise they’re very very strong. Last decade, most of their growth has come from tools and Windows NT server. Specialized solutions, largely proprietary architectures. That’s a flywheel that will power Microsoft for decade. That’s not as interesting from a competitive perspective. What’s more interesting is taking consumer products and moving them into business — that’s what we’re doing (with Gmail and Apps).
Mossberg: if you were a small developer, and had to decide which platform to build for, how would you decide? iOS, Android..what’s your third choice?
Schmidt: many people don’t have a third choice. Because of the way Apple works, very hard to take tools from Android and move over to iOS. So developer fundamentally has to build an iOS app, then separate HTML5 or Android app. Both Apple and Google have announced strong support for HTML5, but effect of this is that there isn’t enough resource to build third platform.
If you had to pick a third. RIM folks have specialized market solutions about enterprise. I’m not sure what to say about Microsoft and Nokia. It’s highly unlikely you would develop
We would love Nokia to be an Android licensee. Nokia has 40 to 50% of the market, huge in developing markets. But they would have been a great partner.
Swisher: What did you do wrong and right?
Schmidt: I wrote some memos and nothing happened.I was too busy. I take responsibility.
Mossberg: What about search results polluted with junk? Seems like they’re getting worse. Even with the reset, especially for certain types of topics. Is PageRank still the right way to go? Or is there an opportunity for somebody to do to you what you did to AltaVista?
Schmidt: A lot of people try to game the outcome. In the case of recent algorithmic change, we affected 12% of answers. People building huge amount of very low quality content that got highly ranked. We make 100s of improvements every quarter that you don’t see. Merging answers to text, video, and so on.
Trying to move from answers that are link-based to answers that are algorithmically based. Compute the right answer. We don’t view ourselves as beholden to specific set of links. (This sounds a lot like what Microsoft has been saying about Bing for a few years now.)
We can do this without Facebook. We want to produce best answer for people. If we had more information about who your friends are — with your permission, which is very important to say 500 times. We know where your IP address. All these things are enough.
Mossberg: Has Bing impressed you in any way? They do a little more with giving you a direct answer.
Schmidt: There’s a set of answers that they do a better job. A couple of narrow verticals.
I’m concerned about Balkanization of the Internet. Legislation in the Senate to criminalize certain DNS entries based on repeat offenders. Never would have occurred to me that legislators would start to tamper with basic fabric of Internet.
Very concerned we’ll end up with an Internet per country.
Mossberg: What can you do about it?
Schmidt: Start by talking about it. We have that today everywhere except for China. You see effect of firewall in China, not good.
And now it’s demo time! They’re going to show off the new Google Wallet payments system.
Here’s what the cards look like on an Android phone:
Mossberg: how is this different from what’s going on in Japan and Korea?
Stephanie Tilenius: we have offers integrated as well. Coupons. Say you get a coupon for jeans from American Eagle. Save the offer, walk into store, buy some jeans. Tap the phone, transfers payment, rewards. Boom.
Transfers to the company’s point of sale system.
Schmidt: it’s in the credit card companies’ interest to update POS terminals to prevent fraud — NFC fraud so much less.
Swisher: competitors? Square?
TIleinus: This is new. Combining use of cloud and secure element, offers and payments at the point of sale. Square has a device — we’re not distributing devices.
Schmidt: phone is now your wallet. Basically, everybody is going to be doing this.
Here’s a screenshot of Google Offers that are nearby, all saved in your Google Wallet app on the phone. Pretty nice.
Mossberg: but is this cheaper than buying Groupon?
Schmidt: it depends on what Groupon is going for. Maybe you should talk about what we’re offering tomorrow.
Tilenius: showing Google Offers in Portland, Oregon. We have lots of merchants, lots of offers, rolling out in Portland tomorrow. New York and SF this summer.
Swisher: it’s like Groupon now. It’s an offers program.
Tilenius: offers and payments. Tap, pay, and save.
Swisher: who’s your competitor?
Tilenius: combining offers and payments at point of sale, going mobile. That’s unique.
Mossberg: does this really solve a problem? Are credit cards that bad? Doesn’t matter unless merchant gets wallet.
Schmidt: encryption in NFC chip higher security. Great financial interest — they will go into merchants and upgrade them.
Tilenius: we make money on the offers. Not on the payments, not on the app. We can’t say how much we take, but similar to what others like Groupon are doing.
Swisher: why Portland? Good donuts?
Schmidt: good place to test out high tech.
Mossberg: what is appeal to consumers of using phone instead of taking out credit card?
Schmidt: don’t look at it in isolation. Everything in one place, cloud-based, directionally correct. Lose your phone, can reprovision it. Can carry all your vanity cards. Better trackability. Credit scoring — all that is easier in cloud based model.
I’m assuming all major mobile players will offer variant of this idea. Different competitors will have different approaches.
Mossberg: but you said you may make this app for non-NFC phones?
Schmidt: no intent to favor just one platform. Advertisers are advertising to sell. Easier we make it for you to advertise and buy then and there, everybody’s happier. Advertisers, consumers. We make our money through advertising, offers mechanism.
Swisher: OK, sum up question — what’s the difference between the Schmidt and Page era?
Schmidt: Page will be product focused, even faster. Adult supervision is no longer needed. They grew up and are perfectly capable of running this thing.
Now it’s audience QA time.
Q: Data is generated, but shouldn’t be worried more about what we do with that data?
Schmidt: data is automatically generated. Market discipline is very very tough. If we mis-used big data, everybody would get very upset, severe impact on our brand. In addition to not wanting to do it, we’re disciplined by market.
Q: Voice recognition. Have you considered opening it to other platforms? And what about Google Translate?
Schmidt: yes. Complicated, apps we do for other platforms might not be approved — don’t want to waste our time. Voice and text translation are amazing.
Q. YouTube. Is it a media company? Tech company? Netflix? What is it?
Schmidt: One of most successful acquisitions of any company because of scale delivered. Architectural scale of Google, turn it into repository of video. Since then, figuring out how to monetize it — somewhat successful on semi-commercial content. And now started to fund made-for-Internet content.
We’re a hoster, not a content creator. We had lot of problems with content industry with illegal uploads, we addressed that with Content ID.
Q. You also said that Google had developed technology to predict stock market and didn’t do that.
Schmidt: That was a joke. We’d had a conversation, we began to investigate it, discovered it was illegal. We have done some predictive outcomes for non-regulated things.
Q. What’s your process for ethically deciding what not to do? Who’s involved?
Schmidt: Decision of senior leadership. Legal rep gets involved early. So sensitive on privacy issues now, we have people involved very early talking about tradeoffs.
Engineering has had a libertarian bias on the Internet. Not always a good idea, some cases illegal. Educating engineers takes time.
[Aside: these audience questions are dull, dull, dull. Makes you appreciate the real journalists who hosted the first hour of questions.]
Swisher: what about Sarkozy? What was he saying about regulation last week?
Schmidt: very colorful person. His point — there could be a counterrevolution unless there’s regulation. We told him, don’t mess with Internet unless you have to.
Other side very smart. Will prevent solutions at technical level. We know how to monetize content on Web, so for newspapers we can do that. ContentID, can detect illegally uploaded copies.
Our industry is remarkably resilient to get through these things.
Q: What’s the next big thing?
Schmidt: with artificial technology we can predict things. Phone or tablet or equivalent device could be a wonderful assistant — remembers what you’re doing, suggests things, go to new city it knows your preferences. All of these are seen by startups as potential areas.
Largest market, — mobile-local-social. Local content, on mobile devices, tied to a person with their permission. That’s how we evolved. That’s where a lot of venture money is going.
Swisher: self-aware devices?
Schmidt: you want to be careful with language. Self-driving car is just driving, not thinking. It’s a 3-way auto pilot.
With respect to self awareness — question of consciousness has been discussed at length. Computers remember everything. But not conscious. They can suggest things to you.
Q: Is Android temporary? Should we just do HTML5?
Schmidt: No. More than 400,000 Android phones activated per day. Uses variant of Java as dev language, has a powerful browser. Emergent standard is HTML5, supported by Chrome. Chrome OS. Also announced at I/O.
HTML5 open Web standard. Android based around touch.
Possible merge — wrappings around Java apps that could make them into HTML5 apps, that difference goes away. Eventually HTML5 will be most development, but that’s many years from now. If entire industry moved to HTML5, that would be very consumer friendly.
Mossberg: what about Android vs Chrome? From consumer point of view, what’s the difference?
Schmidt: consumer doesn’t understand anything we just said. They know they have one store for iPhone apps, a different store for Android phone, Web is another store. Possible merge point, but from consumer perspective, different devices. It’s defined by devices.
Touch mobile devices — Android. Keyboard-based device — Chrome.
Or think about things primarily Web resident — Chrome.
Chrome browser — if you’re concerned about security you should use it. 15% of all browsers, faster, more powerful. Could also use a Mac over a PC, speaking as a proud former Apple member. If you’re a Gmail user, use two-factor authentication, if they steal your password and go into Gmail account.
Swisher: innovation. How do you prevent dullness? Companies peak and then they go.
Schmidt: last few years, ability to enter new markets. Display, YouTube, Chrome, Android. Relatively new in Google history, 2 or 3 years.
Most interesting things in intersection of mobile-local-social with back-end server. Many teams using power of back end — like voice recognition. Powerful servers.
Swisher: do you have to buy things? Will you buy Twitter?
Schmidt: our social strategy does not require it. Our social strategy is about collecting info to make our services better.
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